Monday May 20, 2024

Iran dangles threat of $18bn penalty over pipeline project

By Khalid Mustafa
January 31, 2023

ISLAMABAD: In a new development, Iran has asked Pakistan to construct a portion of the Iran-Pakistan (IP) gasline project in its territory till February-March 2024, or be ready to pay a penalty of $18 billion.

The authorities in Tehran communicated this to the visiting Pakistan official delegation some three weeks ago, a senior official of the Ministry of Energy told The News. During the visit, Iranian authorities said that the US sanctions on Iran were illegal and Pakistan, under the revised agreement, was bound to erect the pipeline in its territory till February-March 2024. Iran had already completed part of the pipeline in its own territory from the gas field to the Pakistan border.

The Inter-State Gas Systems (ISGS) of Pakistan and the National Iranian Gas Company (NIGC) had inked a revised agreement in September 2019 for the construction of the gas pipeline between the two countries.

Under the revised accord, Iran would not approach any international court if there was a delay in the construction of the pipeline, and neither would Pakistan pay any fine to Iran till 2024. Pakistan would be able to construct its pipeline by 2024 after which it would have an intake of 750 million cubic feet of gas from Iran daily.

Now under the latest scenario, the official said, Iran reminded Pakistan about completion of the project by February-March 2024.

When contacted, a spokesman for the petroleum division admitted that a Pakistan delegation visited Tehran recently, but he opted not to disclose any information about the outcome of the visit.

Earlier, the officials said, Tehran had formally given a notice to Islamabad in February 2019 for moving an arbitration court for not laying down the pipeline in Pakistan’s territory in the stipulated time period under the IP gasline project, and threatened to invoke the penalty clause of Gas Sales Purchase Agreement (GSPA).

The GSPA was signed in 2009 for 25 years, but the project could not get shape. Almost 12 years have passed since the signing of the agreement, and the three-year construction period for the pipeline in Pakistani territory has been wasted. Under the agreement, Pakistan was supposed to lay down in its territory a pipeline of 781-kilometre from the Iranian border to Nawabshah under the GSPA.

Under the original agreement, Pakistan is bound to pay $1 million per day to Iran from January 1, 2015, under the penalty clause. And in case Iran moves an arbitration court, Pakistan would have to pay billions of dollars as penalty.

The project was to be implemented under a segmented approach meaning that Iran had to lay down the pipeline on its side and Pakistan had to build the pipeline in its territory. The project was to be completed by December 2014 and become functional from January 1, 2015.